Income tax is a crucial component of the Indian financial system, contributing significantly to the nation's development. However, as a taxpayer, it's important to be aware of the various legal methods available to reduce your tax burden. By utilizing deductions, exemptions, and smart investment strategies, you can effectively minimise your taxable income and save more money. Whether you're investing in tax-saving instruments or planning for a home loan, this guide covers it all. Discover how to save income tax in India effectively and keep more of your hard-earned money.
Understanding the basics of income tax
Income tax in India is a tax levied by the government on the income earned by individuals and businesses. The tax rates are based on income slabs, which are revised periodically. It is essential to understand these slabs to know how much tax you owe.
Income tax is divided into direct and indirect taxes. Direct taxes include income tax, while indirect taxes include GST. The tax you pay depends on your total income, including salary, business profits, capital gains, and other sources. Knowing the basics of the Indian tax system can help you plan your finances better and take advantage of various tax-saving opportunities.
The government also provides several exemptions and deductions to encourage saving and investment. By understanding these provisions, you can reduce your taxable income and save money. Learning about tax regulations and staying updated with changes can significantly impact your tax planning.
Utilise Section 80C deductions
Section 80C is one of the most popular sections for tax-saving. It allows deductions up to Rs. 1.5 lakh from your total income through various investments and expenditures. Here are some key avenues under Section 80C:
- Public Provident Fund (PPF): Investments in PPF are tax-deductible and the interest earned is tax-free.
- Employee Provident Fund (EPF): Contributions towards EPF are eligible for deduction.
- National Savings Certificate (NSC): Investments in NSC qualify for deduction.
- Equity Linked Savings Scheme (ELSS): Investments in ELSS funds are deductible, and they offer the dual benefit of tax saving and potential market-linked returns.
- Life Insurance premium: Premiums paid for life insurance policies for yourself, your spouse, or your children are deductible.
- Principal repayment on home loan: The principal portion of your home loan EMI is eligible for deduction.
Take advantage of Section 80D for health insurance
Under Section 80D, you can claim deductions for premiums paid towards health insurance policies. The limits are as follows:
- Up to Rs. 25,000 for insurance of self, spouse, and children.
- An additional Rs. 25,000 for insurance of parents (Rs. 50,000 if parents are senior citizens).
- Preventive health check-ups up to Rs. 5,000 are also included within the overall limit.
Benefit from House Rent Allowance (HRA)
If you live in rented accommodation and receive House Rent Allowance (HRA) as part of your salary, you can claim an exemption on HRA under Section 10(13A). The exemption is calculated as the minimum of:
- Actual HRA received.
- 50% of salary (basic + DA) for those living in metro cities (40% for non-metros).
- Rent paid minus 10% of salary (basic + DA).
Interest on home loan (Section 24(b))
Under Section 24(b), you can claim a deduction of up to Rs. 2 lakh on the interest paid on home loans for self-occupied properties. For let-out properties, the entire interest is deductible.
Claim benefits under Section 80E for education loan
Interest paid on an education loan for higher studies is deductible under Section 80E. There is no upper limit on the amount that can be claimed, but the deduction is available for a maximum of 8 years or until the interest is paid, whichever is earlier.
Use the new tax regime wisely
The new tax regime introduced in Budget 2020 offers lower tax rates but does not allow most deductions and exemptions. Depending on your income and investment profile, you might benefit more from the new regime or the old regime with deductions. It's crucial to compare both regimes to determine which one is more advantageous for you.
Deduction for donations (Section 80G)
Donations to specified charitable institutions and relief funds are eligible for deduction under Section 80G. Depending on the institution, the deduction can be 50% or 100% of the donation amount, subject to certain limits.
Save through Section 80TTA and 80TTB
- Section 80TTA: Allows a deduction of up to Rs. 10,000 on interest earned from savings accounts with banks, post offices, or cooperative societies.
- Section 80TTB: For senior citizens, a deduction of up to Rs. 50,000 is available on interest from savings accounts, fixed deposits, or any other deposits.
Invest in National Pension System (NPS) – Section 80CCD
Contributions to the National Pension System (NPS) are eligible for deduction under Section 80CCD. This includes:
- Section 80CCD(1): Deduction up to Rs. 1.5 lakh within the overall limit of Section 80C.
- Section 80CCD(1B): Additional deduction of up to Rs. 50,000 over and above the Section 80C limit.
- Section 80CCD(2): Employer’s contribution to NPS is deductible up to 10% of salary (basic + DA) without any upper limit.
Other specific deductions
- Section 80GG: Deduction for rent paid if you do not receive HRA, subject to certain conditions.
- Section 80GGB and 80GGC: Deductions for contributions to political parties or electoral trusts.
- Section 80RRB: Deduction for income from royalties or patents, up to Rs. 3 lakh.
Save taxes through capital gains exemptions
Capital gains from the sale of assets can be tax-free if invested in specified instruments or assets. For example:
- Section 54: Exemption on long-term capital gains from the sale of a residential property if reinvested in another residential property.
- Section 54EC: Exemption on capital gains from the sale of long-term assets if invested in specified bonds within 6 months.
Saving income tax in India requires a strategic approach, leveraging available deductions, exemptions, and smart investment options. By understanding the provisions under various sections of the Income Tax Act, such as Section 80C, 80D, 24(b), and others, you can effectively reduce your taxable income and enhance your financial well-being. It's advisable to consult with a tax professional or financial advisor to ensure that you are taking full advantage of all possible tax-saving avenues, thereby optimizing your tax planning and compliance.
Explore Bajaj Housing Finance Home Loan
Unlock the door to your dream home and enjoy significant tax savings with Bajaj Housing Finance Home Loan. Whether you are a first-time homebuyer or looking to invest in a new property, Bajaj Housing Finance offers a range of flexible home loan solutions tailored to meet your needs. By leveraging the benefits of home loan tax deductions under Sections 24(b) and 80C of the Income Tax Act, you can reduce your taxable income and maximize your savings. Here's why you should consider choosing Bajaj Housing Finance for your home loan:
- Competitive interest rates: Our home loan offers low interest rates, making it affordable for borrowers.
- EMI calculator: You can utilise our home loan EMI calculator, this can help you plan your finances by calculating monthly instalments based on loan amount and tenure.
- Flexible repayment options: Bajaj Housing Finance Home Loan provides long repayment tenure, allowing you to choose a repayment plan that suits your financial situation.
- Quick processing: The home loan application process is swift and hassle-free, ensuring quick approval and disbursal.
Choose Bajaj Housing Finance Home Loan to turn your homeownership dreams into reality, enjoy financial flexibility, and maximise your tax savings.
